THE HAnDbook of TECHniCAl AnAlysis26.1 Fulfilling Client Objectives and Risk Capacity
Before advising our clients as to whether they should further participate or exit
the markets, we must first be familiar and understand the client’s:■ (^) Objectives
■ (^) Market and performance expectations
■ (^) Risk capacity
We may then proceed to advise the client in accordance with preferred trading
and investment objectives and level of risk tolerance.
The client’s objectives include:
■ (^) The client’s preferred‐term outlook, that is, the average length of time in the
market that a client expects his or her investment or trading objectives to be
met, profitably or otherwise, be it in the short, medium or longer term. Depend-
ing on the duration of the outlook, trading and investment styles may range
from short‐term speculation like day trading and scalping, to intermediate‐
term position or swing trading. Longer‐term participation usually involves the
conventional buy and hold approach but may also involve more active port-
folio management approaches like sector rotation and investing in technically
driven funds or exchange‐traded funds (ETFs).
■ (^) The client’s trading and investment intention, that is, the client’s preferred
mode of participation in the markets and style of trading or investment
■ (^) The client’s market and performance expectation, which includes:
■ (^) The client’s personal beliefs, expectations, biases, and opinions about
whether a market is currently bullish or bearish or will be so sometime in
the future
■ (^) The client’s personal beliefs, expectations, biases, and opinions about cur-
rent and future performance returns
■ (^) A client’s risk capacity, which is the amount of risk that a client can handle or
tolerate, and may be categorized as either:
■ (^) Risk Seeking (aggressive)—more willing to take an above average level of
risk
■ (^) Risk Averse (conservative)—less willing to take an above average level of
risk
Unfortunately, the determination as to whether risk is above average or other-
wise is, at best, subjective.
Also note that risk‐seeking behavior does not always imply a more aggressive
market participant, nor does risk‐averse behavior always imply a more conserva-
tive market participant. As you will shortly see, there are many ways to define
aggressive and conservative behavior.